We review Philip Hammond's first Spring Budget address
Current Affairs

The Spring Budget in review

An upbeat Budget? One of prudence? One of tax raiding? Or one of ‘utter complacency’? Political commentators and critics will take from it what they will, as is the case with any Budget address. But conspicuous by their absence in Chancellor Philip Hammond’s first (and final) Spring Budget were the rabbits out of hats we’d grown accustomed to from his predecessor.

Indeed, the core of Hammond’s speech in the House of Commons and the tones he struck fell almost exactly into line with expert predictions beforehand. The cautious optimism from improved economic performance and growth predictions. The increased windfall from tax receipts, and reduction in overall borrowing. The lack of giveaways. The frugality in the face of looming Brexit uncertainty. It all went like clockwork.

Perhaps the biggest surprise of all was the charisma with which he addressed the house, and his marginally-humorous jibes in the direction of the opposition benches.

Nevertheless, there was still plenty of interesting food for thought, and a few headline grabbers which need to be digested. Here are Budget 2017’s key takeaways with respect to personal finance:

Focus on the public finances

Hammond certainly did justice to his nickname of ‘spreadsheet Phil’. Despite better-than-expected headroom as a result of increased tax receipts and significantly reduced forecasts for borrowing, the Chancellor made clear that he would not be splashing the cash. The increase in borrowing for 2016/17 may have come in at £51.7bn - £16.4bn less than forecast – with the figure set to fall to an even more respectable £20.6bn by 2020/21. But the reality is that a national debt of £1.7tn remains a terrifying spectre (one which costs £46bn a year to service), and it is difficult to dispute the necessity for dealing with it decisively.

Business rates

Few issues will ever unite all wings of the media, but the looming business rates increases, and the largely arbitrary determinants thereof, was enough to have both left and right up in arms. Understandably so, and with the fabric of our high streets under threat, it came as no surprise that Hammond announced a £435m package for firms affected by increases in rates - £300m of which will be reserved for those worst affected. Furthermore, increases for firms who lose out on small business rate relief will be capped at £50 a month, while pubs with a rateable value below £100,000 will be in line for a £1,000 discount on rates they pay.

An attack on the self-employed

Easily the most controversial announcement was a hike in class 4 National Insurance payments for the self-employed; currently at nine per cent, but rising to 11 per cent by April 2019. It all but breaks a pledge from the Conservatives’ 2015 manifesto, and one can’t help but wonder whether doing so represents poor PR, given that the net gains for the Treasury will be a relatively meagre £145m per year (factoring in reductions to class 2 NICs). Hammond offered detailed rationale for the hike, which equates to a net average increase of just 60p a week per self-employed individual, but many will be left seething.

Tax-free dividend allowance slashed

For the self-employed and pensioners alike, the biggest blow of all will have been the news that the tax-free dividend allowance for shareholders and directors of small private firms will be cut by more than half from £5,000 to £2,000 next year. For those who rely on these annual cash payments in their retirement, the ramifications are significant. Yet what will go some way to offsetting this news was the confirmation that the annual ISA allowance will be increasing to £20,000 for 2017/18, which, in turn, is a big boost for those looking to make use of an Innovative Finance ISA.

The personal allowance and NS&I savings bond

As the NIC increase for the self-employed showed, pledges from politicians aren’t always delivered upon in practice. It was thus reassuring that the personal tax-free allowance would still be rising as planned to £11,500 for 2017/18, and increasing to £12,500 by 2020. There was also confirmation for beleaguered savers that the NS&I savings bond, which was first announced at last year’s Autumn Statement, will launch in April, with a promised rate of 2.2 per cent for those willing to tie up their savings for three years.

A job well done?

There were some other talking points involving social care, education and investment in infrastructure and technologies which will inevitably attract both negative and favourable press. The only guarantee with any address at the despatch box is that there is simply no chance of pleasing, or even placating, everyone.

The harsh reality is that, at the best of times, a Chancellor has limited room for manoeuvre when it comes to spending, and Hammond’s address against a backdrop of debt, low productivity and macroeconomic uncertainty meant he was more hamstrung than most who’ve held the iconic briefcase aloft in years gone by. There were no handouts or shenanigans, but a number of important boxes were ticked, and the Chancellor conveyed the message that the economic outlook is better than expected, and that the UK is on a relatively good footing.

Given such mitigations, Hammond may well feel entitled to reflect on a job well done. Yet there is likely to be blowback from the self-employed, and proponents of aspiration. And unlike George Osborne, he also did little to signal any significant support for fintech and SMEs, which are so crucial to the British economy. As such, many may argue that the Chancellor’s Budget lacked the dynamism that will be needed as we embark upon the post-EU journey that lies ahead.

Related articles:

Michael Todt

Mike joined Lending Works in early 2015 with a background in marketing and journalism. Having long held a passion for economics, he is now the chief contributor to the Lending Works blog, and regularly writes about all things peer-to-peer lending, fintech and personal finance.